Election tax watch 4 July 2024

With a general election called for 4 July 2024, the tax policies of the two major parties are in focus. This is a developing guide on those policies, and they can change once a party is in government.

[First published 22 May; updated to 1 July]

See also our quick guide to Labour and Conservative tax policies, and join our post election panel discussion on 9 July - 3pm-4pm.

Breaking news:

25 June: Chancellor Jeremy Hunt says he will introduce "five tax cuts" from April 2025 if he remained in office to deliver an autumn budget. He mentioned: a further 2p cut to employee NICs, abolishing NICs for the self-employed, introducing an additional personal allowance for those on the new state pension, tax relief for landlords who sell to their tenants, and abolishing stamp duty for most first-time buyers.

24 June: According to the FT and the Guardian, based on research by the Institute for Fiscal Studies, Labour is considering aligning CGT rates with income tax rates and restricting IHT agricultural and business relief to £500,000 per person (instead of e.g. the current 100% where agricultural land is being actively farmed).

21 June: Rachel Reeves indicates that Labour will delay VAT on private school fees until 2025. Keir Starmer says he will not extend the temporary increase in the stamp duty threshold, which was raised from £300,000 to £425,000 in 2022.

20 June: Bank of England keeps interest rates at 5.25%, the eighth consecutive time the monetary policy committee has voted to keep the rate unchanged.

19 June: Inflation falls in May 2024 to 2.0%.

15 June: Keir Starmer rules out imposing CGT on the sale of people's homes.

13 June: Labour Party manifesto launch. Labour Party tax policies include plans for £8.5bn of tax rises, strengthening the role of the Office for Budget Responsibility, keeping taxes low for "working people", no increase in Income Tax, National Insurance or VAT (no mention of CGT), replacing the non-dom tax regime with a new system for short term stayers, end the use of offshore trusts to avoid IHT, modernise HMRC, tackle tax avoidance, keep corporation tax at 25%, retain permanent full expensing, more clarity on business investment allowances, replace the Apprenticeship Levy with a new Growth and Skills Levy, and replace the business rates system with a new property tax.

11 June: At the launch of the Conservative Party manifesto, on tax Rishi Sunak promised £17bn of tax cuts, further cuts in NICs for both employees and the self-employed and to keep those on the basic state pension under the income tax threshold. See more details under the section on Conservative Party tax policies below.

See our other election articles:

With inflation falling from 11% to 2.0%, possible cuts in bank interest rates from the current 5.25% on the horizon this summer, and UK growth looking like it could take off again, Rishi Sunak is calling a general election on 4 July 2024 (Independence Day in America).

Timetable

May 22 - election called
May 24 - parliament prorogued (& Finance (No 2) Act 2024 enacted
May 30 - parliament dissolved
Jun 10 - Liberal Democrat manifesto
Jun 11 - Conservative party manifesto
Jun 13 - Labour party manifesto
July 4 - general election held
July 9 - join our post election panel discussion - 3pm-4pm
July 9 - a new parliament formed
July 17 - state opening of parliament, King's speech, and new MPs sworn in

(Dissolution and Calling of Parliament Act 2022)

Key tax battlegrounds

The key battlegrounds of the Conservatives and Labour are such matters as cuts to NICs, pensions, and cracking down on tax avoidance (but not likely without increasing HMRC's resources).

Both parties have said they will not increase the main rates of income tax, NICs and VAT, which account for the vast majority of the Treasury's revenue, which leaves it open for other taxes to be raised or new taxes created.

The Conservatives want to abolish employee NICs, but the cost of this is over £40bn, so is more of a long-term aspiration.

Labour has said it will:

Extend tax on non-doms beyond the proposals in the Spring Budget;
Apply VAT to private education; and
Change the tax treatment of carried interest for investment managers.

Rachel Reeves, the Shadow Chancellor, appears to have signed up to the spending plans that Jeremy Hunt set out in the spring Budget, but the chairman of the Office for Budget Responsibility (OBR) has described them as worse than fiction, and the International Monetary Fund’ claims that the Chancellor’s Budget plans contain a £30bn black hole that will need covering with tax rises and/or spending cuts.

In an interview on 28 May, Rachel Reeves also promised that there will be "no additional tax rises" beyond those already outlined if Labour wins the election (although we have yet to see what is in the manifesto). She has ruled out increases to income tax, National Insurance, corporation tax, or any form of wealth tax.

But will she change Capital Gains Tax? See our article: Might we see changes to Capital Gains Tax after the election?

The Shadow Chancellor says she would deliver “tough spending rules so we can grow our economy and keep taxes, inflation and mortgages as low as possible.”

Of course, once in power, Rachel Reeves could say something along the lines of: "we've seen the books, and it's much worse than we thought, so we'll have to raise taxes". This could well be the case if Labour wants to spend more on health, education and social care. More government borrowing is not an attractive option as the country's credit card is already at maximum.

The BBC reports that Jeremy Hunt says he would seek to lower income tax paid by people earning between £100,000 and £125,140 per year, who currently pay a 60% rate due to a tapered personal allowance. He has also said he would look at cutting inheritance tax over time. Neither of these promises made it into the official manifesto.

Fiscal drag

However, Hunt has also confirmed that he will not end the freeze on income tax thresholds until 2028, a policy to which Labour says it will adhere. The Institute for Fiscal Studies says this is equivalent to increasing income tax by 6p.

But Rishi Sunak says he plans to unfreeze personal allowances for pensioners, if re-elected, to avoid those receiving the basic rate pension being dragged into the tax system. In April 2024 the pension rose by 8.5% from £10,600 to £11,502 (just £1,068 less than the frozen personal allowance of £12,570). The OBR calculates that by 2027, the state pension will be higher than the personal allowance.

Regardless of what tax promises are being made, the OBR says taxes as a proportion of GDP will rise from 36.1% in 2023/24 to 37.1% in 2028/29, the highest since 1948. This is, in the main, due to freezing income tax allowances and thresholds since 2021 and until 2028 (fiscal drag).

Business taxes

Labour has confirmed it will keep the current 25% rate of corporation tax for the next parliament, and will retain full expensing relief and the Annual Investment Allowance (although the scope of these reliefs may change).

In addition, the current regimes for R&D tax relief and Patent Box will also be kept for the next parliament (but their scope and how they are managed may alter).

Labour has also mentioned a plan to replace business rates with a business property tax, but there is currently little detail on what this may entail.

The Federation of Small Businesses has published what it would like to see happen on business taxes, including: a reform of business rates, an increase in the Employment Allowance, an increase in the corporation tax small profits rate threshold, and no tax rises on those who work for themselves.

Tax avoidance

There is an ongoing battle between the two parties has to how much money could be raised from tackling tax avoidance, with the Conservatives claiming £6bn and Labour £5bn.

According to the House of Commons Library report on the tax gap published on 29 May 2024, around £6bn could be collected from cracking down on tax evasion and avoidance, but around £16bn is lost through failure to take reasonable care and error.

It is hard to see how this tax gap can be targeted without HMRC receiving a significant boost to its resources.

What taxes are likely to change? Stamp Duty/Council Tax/Pensions?

Stamp duty is going to change after the election. The Conservatives have said there will be no Stamp Duty for homes up to £425,000 for first time buyers, but Keir Starmer says he will not extend the temporary increase in the stamp duty threshold, which was raised from £300,000 to £425,000 in 2022. It will therefore return to £300,000 on 1 April 2025.

Labour has also previously said it would increase the stamp duty land tax surcharge for overseas buyers by 1%.

Jeremy Hunt has made a commitment to maintain CGT private residence relief, and not to increase the rate or level of stamp duty (although he has not ruled out a widening of its scope). He has also said he will not increase the number of council tax bands or undertake a council tax revaluation. He has invited Labour to make a similar commitment.

Shadow health secretary Wes Streeting refused to rule out changes to council tax, but shadow paymaster general Jonathan Ashworth said council tax banding would not be changed. Rachel Reeves told the FT that she was not looking at reviewing the system: “It doesn't really matter whether I think it's sensible or not; is that where I'm going to put my political energy? No.”

On top of that there is the question of tax relief for pension contributions, which reportedly costs the Treasury more than £50bn annually. There have been rumours for many years about cutting pension tax relief for higher rate taxpayers and restricting pension relief to just 20%, but so far it hasn't happened. There have also been rumours that Labour would bring pension pots within the scope of IHT, but a party spokesman has said this is not Labour party policy.

Autumn Statement?

It was expected that the general election would not happen until November, after Jeremy Hunt had presented an Autumn Statement (with perhaps further cuts in National Insurance Contributions), but the Spring Budget 2024 was the last fiscal event of this parliament

However, there will still be a fiscal event in the autumn, just not from the current government. Shadow Chancellor Rachel Reeves has confirmed that if Labour win power there will be a Budget most probably in late September.

(See more about the post-election landscape towards the end of this article.)

Bank of England

As an aside, the Bank of England announced its next decision on interest rates on 20 June 2024, but with an election on 4 July the Bank appears keen to delay any reduction in interest rates in order to avoid appearing to be political. The rate remains at 5.25%, the eighth consecutive time the monetary policy committee has voted to keep the rate unchanged.

However, with inflation rising again in America, there is some speculation that the Federal Reserve could increase its interest rate, which would then put pressure on the Bank of England to delay further any rate cut of its own.

Finance (No 2) Act 2024

Spring Finance Bill 2024 at the time of the election announcement (22 May) was at Report Stage in the House of Commons, but was subsequently rushed through all its stages in just a couple of days and received Royal Assent on 24 May.

The Finance (No 2) Act 2024 includes key measures from the Spring Budget, including:

Raising the threshold for the high income child benefit charge for 2024/25 onwards.
Reducing the CGT rate for residential property gains from 28% to 24% for disposals on or after 6 April 2024.
Abolishing multiple dwellings relief for stamp duty land tax for transactions on or after 1 June 2024.
Prevents individuals from transferring assets abroad through the use of closely-held companies.

Non-dom tax reforms

The non-dom tax reforms announced in the Spring Budget did not make legislation before the election. The Spring Budget proposed a new modern scheme from April 2025, so foreigners living in the UK for more than 4 years (currently 15 years) will pay tax on their foreign income and gains. There will be transitional relief, but there will be less such relief under a Labour government.

Whichever party is in power after 4 July, there will be a new non-dom tax regime in place in 2025 (that may be markedly different to the one proposed in the Spring Budget). We can be reasonably sure that this new regime will usher in changes to the remittance basis, introduce a new four-year regime for those arriving in the UK, have in place some form of transitional relief, and see the removal of certain trust protections.

Once a new government is formed there will still be around nine months before April 2025, so there is time for the proposals to be finalised and enacted. And it is not without precedent that relevant legislation is passed after April 2025 but with an earlier start date.

See our detailed article: The taxation of non-doms and the upcoming election.

National Insurance

Jeremy Hunt has made clear that he wants to abolish NICs over time. However, Shadow Chancellor, Rachel Reeves, does not want to abolish NICs, claiming this would affect the funding of pensions and the NHS.

The Conservative manifesto proposes to abolish Class 4 NICs paid by the self-employed by the end of the next parliament, which will potentially widen the NIC gap between the self-employed and employees (which could create more IR35 off-payroll issues in future).

Under a Labour government it is unlikely that NIC rates will fall any further than they have already done.

Furnished Holiday Lettings (FHLs)

Since the Spring Budget announcements about FHLs being abolished from April 2025, there has been little further information from the government about the abolition of the tax regime, and the measure was not included in the Finance Bill. A consultation document was being awaited with more details about what will change, together with draft legislation. This now appears unlikely in the short term.

See our article: Furnished Holiday Let Tax Changes in 2025.

In the Conservative manifesto of 11 June 2024 it says the party plans to introduce from April 2025 a two-year temporary CGT relief for buy-to-let landlords who sell to their existing tenants.

With the election being called, the measures announced on FHLs are temporarily abandoned, but an incoming government of whichever persuasion is likely to carry them through to enactment in some form. It does not bode well for tax planning when there is this kind of uncertainty.

Conservative Party tax policies

At the launch of the Conservative Party manifesto on 11 June 2024, on tax Rishi Sunak promised:

To abolish entirely Class 4 National Insurance for the self employed by 2029 (Class 4 NICs on annual profits of £12,570 to £50,270: 6% / Over £50,270: 2%). Class 2 abolished in April 2024.
Cut employee NICs by 2pc to 6% by April 2027, and abolish it altogether when economically responsible to do so
Moving to a household system for the High Income Child Benefit Charge, so no household loses child benefit until household income exceeds £120,000 (double the current £60,000 threshold). However, this could result in a parent facing a marginal tax rate of 70%, according to independent analysis.
First time buyers purchasing a house up to £425,000, stamp duty will be abolished entirely.
Corporation Tax will not be raised
Maintain R&D tax reliefs
Business rates support package worth £4.3bn
Keep the VAT registration threshold under review (currently £90,000) and look at options to smooth the cliff edge
Retain key tax incentives, including the Enterprise Investment Scheme (EIS), Seed EIS, Venture Capital Trusts, Business Asset Disposal Relief, Agricultural Property Relief and Business Relief.
No increase in Capital Gains Tax.
From April 2025 a two-year temporary CGT relief for buy-to-let landlords who sell to their existing tenants.
As well as maintaining the state pension triple lock, the personal allowance for pensioners will also rise by the highest of prices, earnings or 2.5%, guaranteeing that the State Pension is always below the tax-free threshold
No new taxes on pensions, and the 25% tax-free lump sum will be maintained. No NICs on employer pension contributions.
Raise £6bn a year from tackling tax avoidance
No mention of cutting or abolishing Inheritance Tax.

In addition, we know from the 6 March Spring Budget what other policies are already in place:

Personal tax thresholds, CGT IHT etc. limits all frozen until 2028
Full Capital Expensing in place permanently since April 2024.
Single R&D scheme since April 2024,
Increase in the National Living Wage since April 2024 to £11.44 per hour
Full Expensing to apply to leased assets when affordable
Extending the Recovery Loan Scheme and renaming it as the Growth Guarantee Scheme
VAT threshold increased from £85,000 to £90,000 since 1 April 2024
Excise duty on vaping from October 2026
Scrapping tax breaks on holiday lets - FHLs abolished from April 2025 (but see above comments)
CGT higher residential property rate reduced from 28% to 24% since 6 April 2024
Extending windfall tax on profits of oil and gas companies until 2029
Scaling back the non-dom tax regime - (but see comments above).
Abolishing Stamp Duty Multiple Dwellings Relief for transactions with an effective date on or after 1 June 2024

You can also download our Spring Budget documents

British ISA

One of the less publicised measures announced by Jeremy Hunt in the Spring Budget was the proposed launch of a British Individual Savings Account (ISA). No date has been set for its introduction, but Labour has said it will push ahead with the measure if elected. A consultation on the ISA is set to close on 6 June 2024.

Labour Party tax policies

Labour published its manifesto on 13 June 2024. With Labour currently predicted to form a majority Government following the 4 July General Election, set out below are previous announcements made by Shadow Chancellor, Rachel Reeves as well as anything different in the Labour manifesto.

From what we know so far, increases in CGT rates are not high on Labour's agenda, following comments from Rachel Reeves that ‘preferential tax treatment’ for wealth generators was an important element in growing an economy, and that a ‘wholesale equalisation’ of income tax and capital gains tax could hurt investment.

See our article: Might we see changes to Capital Gains Tax after the election?

Labour have also said that they have no plans to change IHT, which isn’t a commitment not to change it. They have, however, ruled out introducing a wealth tax.

Rachel Reeves has stressed the importance of maintaining strict fiscal controls over tax and spending plans, which is no different from previous Chancellors, but always good to hear.

In the manifesto and in media interviews with the shadow chancellor, Labour has made the following policy announcements:

A promise not to "raise taxes on working people"
Raise £5bn a year by tackling tax avoidance
There is no commitment to ending fiscal drag, and her plans are to maintain tax thresholds where they are (even though this policy will help generate the UK's highest tax burden by 2028).
As inflation returns to around 2% (the Bank of England's arbitrary target figure), the Treasury will receive less revenue from fiscal drag (frozen tax allowances), so Reeves may look at creating a new tax to counter this.
To make private equity bosses pay 45% tax rather than the 28% they can pay under the “carried interest” rules.
The 25% rate of Corporation Tax will be held in place until 2029
Full Expensing and the Annual Investment Allowance will be maintained.
There will be no cap on bankers' bonuses (something that bankers had already circumvented with higher salaries)
Within six months of a Labour government, it has pledged to publish a “roadmap” for business taxation.
It has also said it will close IHT exemptions for agricultural / farming land (not clear in the manifesto)
And business relief may end which exempts shares in an unlisted company or a significant interest in a business.
Scrapping or reducing business asset disposal relief (formerly entrepreneurs' relief) is also on the cards - but not mentioned in the manifesto - which allows people who own more than 5% of a company to sell their stake and pay a lower tax rate (even though this relief was introduced by Labour's Alistair Darling when Chancellor).
Non-doms. Reducing the period from 15 years to 4 years that individuals coming to live in the UK can avoid tax on their foreign earnings (but Jeremy Hunt has already announced a form of this, though Labour are likely to be less generous with the transitional provisions).

Labour's definition of “working people” is not clear, but Keir Starmer says the definition includes anyone who works and pays their taxes, no matter their savings, including himself.

VAT on private education

There is also a proposal to remove the VAT exemption from private school fees. The business rates exemption for private schools may also be removed. The Institute for Fiscal Studies estimates that this would raise £1.6bn per year in extra tax (on current numbers attending private schools), but the cost of absorbing extra pupils into state schools as a result could cost between £100m to £300m per year.

It is understood that the policy may be subject to a number of legal challenges from independent schools as potentially a breach of the European Convention on Human Rights (ECHR):

Article 2 - Right to education. Could the imposition of VAT be seen as restricting parental choice?
Article 14 - Prohibition of discrimination. Does it indirectly discriminate against people of a certain social origin?
Article 1 - Protection of property. If private schools are financially affected, are their property rights affected?

If the policy is enacted, it is not clear as to whether one could, in principle, retain the current ‘VAT-free’ status by prepaying school fees, but that would be subject to any (as yet unclear) anti-forestalling legislation.

On 21 June 2024, Rachel Reeves indicated that Labour will delay VAT on private school fees until 2025.

Pension lifetime allowance

Rachel Reeves had originally pledged to reverse the abolition of the £1m pension lifetime tax-free limit on pension contributions, which Jeremy Hunt announced last year to stop consultants leaving the NHS as they were facing large tax bills. In seeking to reverse the abolition, However, Reeves has since u-turned on this and will NOT reintroduce the lifetime limit.

Tax dossier

In addition, Jeremy Hunt issued a dossier of possible Labour tax rises, but this is not borne out by Labour's manifesto and the Treasury has made clear it did not provide the calculations for this.

Labour's Green Prosperity Plan

On the much-advertised policy of spending £28bn a year on its Green Prosperity Plan to boost green industries (first announced in 2021), Rachel Reeves has made clear that this is only an ambition and will depend on keeping within certain fiscal parameters.

According to The Times, Labour now only plans to borrow £2.6bn a year for net-zero investment and cover the balance through an extended windfall tax on oil and gas companies. But it still plans to create a state-owned energy company at a one-off cost of £8.3bn, and to decarbonise heavy industry via a £7.3bn national wealth fund.

Labour's Business Partnership

Labour has also published a Business Partnership paper that includes policies such as:

One Budget every autumn, at least 4 months before the new tax year
10-year Research & Development budgets and a new Regulatory Innovation Office
Apprenticeship Levy reforms to create a more flexible skills Levy.
A New Deal for Working People that provides a living wage and bans “exploitative” zero hours contracts

We have already seen some dilution of the proposed policies on workers' rights due to lobbying by businesses, and push back from the shadow chancellor.

On 24 May 2024, the New Deal for Working People was renamed Make Work Pay in order to reassure businesses, and promises a full consultation before enacting legislation.

It does confirm some key policies, including removing some current trade union legislation, a reduction in government outsourcing, and an end to hire and re-fire (unless bankruptcy would otherwise result), as well as “day one rights” on unfair dismissal, parental leave and sick pay (all subject to an employer's probationary periods and other possible exemptions yet to be made clear).

See our article: How the election results may affect employers

Rail re-nationalisation

Shadow Transport Secretary, Louise Haig, has reiterated a policy first announced under Jeremy Corbyn that the rail networks will be renationalised as the private contracts of rail operators expire. This is confirmed in the manifesto. This could mean that the operation of trains could be returned to public ownership within five years. No compensation will be offered to the rail companies, she has said.

Post-election landscape: a Budget in September?

Based on previous elections, we should discover more about the new government’s real tax and spend intentions in a Budget held within a few months of the polls closing. That means we could see an incoming Labour Budget in September. Rachel Reeves has already said she wants to hold a single Budget each year, in the autumn.

On 29 May, Reeves confirmed that if Labour win power there will not be a Budget until late September at the earliest in order to allow the OBR 10 weeks to weigh up the Shadow Chancellor’s plans.

In any event, the (new) Chancellor is due to deliver a Spending Review for the next three years from April 2025, which cannot practically be deferred beyond November.

Tax announcements might also emerge at that second fiscal event.

Autumn brings a number of costly calls on government resources:

compensation for the Post Office horizon scandal, and
blood contamination scandal, and
Women Against State Pension Inequality (WASPI).

To which potentially can be added funds to bail out failing water companies and local councils. The next Economic and Fiscal Outlook from the OBR, theoretically due in the autumn, looks a challenge for whomever is Chancellor – and may explain the early election date.

Tax planning

We will keep you updated as tax policy announcements arise or as we find earlier announcements which were not previously covered above.

In the meantime, if you would like to discuss how the election and possible change of government may affect your taxes or those of your business, please contact your usual Bishop Fleming advisor.

[Gary Mackley-Smith]